What is a USDA Home Loan?

Brown wooden house in the country

Due to COVID-19, we are temporarily unable to offer USDA loans.

Are you dreaming of country living? Moving to a quaint home that’s secluded from the rushed city lifestyle does sound relaxing. The good news is, there are many home financing options available to make that dream come true.

For now, we’d like to introduce you to the most significant mortgage savings — and that’s by financing your new home with a zero down payment USDA home loan.

Types of USDA loans

Like FHA, a government agency sponsors the program, but local lenders handle 100% of the transaction. There are two options when it comes to USDA home loans.

1. Single-family housing guaranteed

The guaranteed loan option is the more popular choice of the two USDA home loan programs. It’s intended for rural buyers with higher income and credit limits, so there are fewer requirements to meet.

2. Single-family housing direct

This program, also known as the Section 502 Direct Loan Program, assists low-income applicants with finding housing in eligible rural areas. The program provides

payment assistance to increase an applicant’s repayment ability.

For a property to qualify for direct loan financing, it must:

  • Be 2,000 square feet or less

  • Not have a market value over the applicable area loan limit

  • Not have in-ground swimming pools

  • Not be designed for income-producing activities

Breaking down USDA income limits

Like most loan programs, how much an applicant can borrow depends on his/her income, assets, debts, etc. However, the USDA loan program has additional requirements to meet. Your household size and the county you live in are also considered.

The base USDA gross income limits are:

  • 1-4 member household: $82,700

  • 5-8 member household: $109,150

Income includes salary, overtime, commission, tips, bonuses and any compensation for services; though it may also cover housing or the cost of living allowances. Let’s not forget — depending on the lender you choose — there may be additional income guidelines to follow. For example, at American Financing, we require two years’ worth of steady employment.

Curious if you fall within USDA income requirements?
Find out here

Credit requirements

The USDA home loan program offers flexible credit requirements. Different lenders may impose additional credit requirements, but typically you’ll need a credit score of 640 to receive automatic underwriting approval.* It is possible to have a lower credit score if you’re able to receive a manual underwriting review, but that’s dependent on your lender and your overall debt-to-income (DTI) ratio.

Interest rates and loan terms

Interest rates align with current market rates for most loan programs, and loan terms can be set at 15 or 30 years.

If your property qualifies for a single-family housing USDA direct loan, you may enjoy interest rates as low as 1% and up to a 33-year loan term. These perks do not apply to the USDA single-family housing guaranteed program.

How to check your address

Eligible rural areas to qualify for the USDA Rural Development Guaranteed Housing program were updated June 4, 2018. This happens every five years to address our nation’s growing population. Since the USDA home loan is designed for rural areas or open country, there has to be a rural-in-character (RIC) analysis to check the USDA eligibility map’s population per square mile.

So, how do you know if your property qualifies? Generally speaking, any rural community with a population below 35,000 is a sweet spot for finding a USDA loan eligible property.

Find out if your home is USDA loan eligible.
Check your address here

Additionally, the property must meet the following requirements:

  • The borrower must live in the home as his or her primary residence

  • The property must be a single-family home, condo, manufactured home, or a unit development

USDA guarantee fee

While there are many benefits to enjoy, there is a USDA guarantee fee involved, including an upfront mortgage insurance premium (1% of the loan amount) and an annual 0.35% mortgage fee.* These costs are far less than what you’d pay in FHA mortgage insurance premiums, so it’s a loan program that’s worth considering.

*These are 2017 percentages that may be subject to change during the USDA’s 2018 fiscal year, which begins in October.

How much can you borrow?

If you (and your selected property) meet all of the above requirements, you may be curious to learn how much you can finance. The good news is: there is no maximum USDA loan limit. Instead, how much you can borrow is based on the property’s appraisal value, your income, and your ability to repay the loan.

If needed (and you meet the income requirements), you can even finance your upfront guarantee fee.

Begin the application process

Ready to apply? Our mortgage consultants are ready to help. We’re licensed in all 50 states, so we can finance your USDA home loan in any market. Get started by calling (800) 910-4055 or fill out our form below.

*USDA loan requirements are subject to change. As a result of COVID-19, mortgage investors are unable to support as many loans, meaning underwriting guidelines for government loans are becoming more strict.

Get pre-qualified today!
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